What is a Fico Score and How Does it Affect Your Credit?
A Fico score is a type of credit rating. Lenders can buy this rating according to the information contained in an ordinary credit report. A Fico score predicts your future credit risk based on a mathematical equation.
Most credit reporting agencies (for example Equifax, Experian and TransUnion) use the Fico score to judge what type of risk a consumer is likely to be. The term 'FICO' refers to software developed by a company called Fair Isaac and Company. This software determines your score based on a mathematical calculation and takes your credit history into account.
This credit report will need to include at least one account held for longer than six months and one account that has been updated in the previous six months. The goal is to use accurate, current information to predict your credit risk. Using this information, a Fico score can be calculated.
A Fico score is based on your payment history, the amount of money you owe, the length of your credit history, the number of recently opened credit lines, and the kind of credit you have made use of, for example mortgage, retail, car and credit cards.
It has been said that the best predictor of future behavior is past behavior and the Fico score operates on this presumption. A high fico score means a lower risk and vice versa. Of course it's not possible to differentiate good clients from bad. Fico calculations are used by many lenders but it may not be the deciding factor for all of them.
The majority of lenders use a combination approach. This may depend, to a large degree on the type of product being offered. Strategies vary across different lenders and many factors may influence their final decision. It is possible to see which Fico score is awarded a specific interest rate.
A Fico score may be termed differently depending on the credit agency for example Credit Reporting Agency FICOŽ Score, Equifax BEACONŽ,
Experian Experian/Fair Isaac Risk Model and TransUnion EMPIRICAŽ but they all make use of the same basic Fico approach.
Other credit bureau scores do exist but the Fico score is the one most commonly used. Your score may differ across agencies because each score is based on the report held by that agency. Your score is also likely to change as your credit data changes so it's not carved in stone.
